Friday, April 10, 2009

The dreaded "D" word

Red Frog and I were quibbling a couple of months back on whether we're now in a "depression" (as opposed to a "recession"). Of course events have moved on inexorably since then -- all for the worse. What would the consensus of opinion be now?

9 comments:

Red Frog said...

Let's define depression, then. Certain rate of unemployment? Certain rate of foreclosures? Certain rate of poverty? Certain rate of collapse of stock market? Certain rates of collapse of production? Deflation? Throttling of credit? Starvation? Homelessness?

At least in the United States and western Europe, except for foreclosures (which was brought about by a peculiar and massive overproduction of homes and cheap credit...) I think the rest of the rates have not reached those of the Great Depression. Perhaps I would call this the 'Great Recession?!' Or perhaps comparing it to prior captialist depressions not labeled 'great' might be useful.

I'm certainly willing to be corrected, but only by facts. I have not read a good left wing definition of recession. Does someone have one?

AA said...

Well ... hmmm, your insistence on an operational definition is a good idea. To some extent the use of the word "depression" is emotive. Let's think about unemployment for a second. Some commentators are suggesting the real rate is now nudging 20% -- which is not that far away from the 25% of the Great Depression. Other than unemployment, another suggestion for diffeentiating between "recession" and "depression" is that the former is a normal (though unpleasant) part of a business cycle; in the latter, the economy is stuck in a permanent slump and no-one has the foggiest idea of how to revive it. Now this distinction is ad hoc and provisional but I suppose an argument can be made that the present -- slump? crisis? -- is not part of a cycle but reflects the build-up of certain long-term tensions and contradictions similar to what occurred in 1929 and its aftermath.

To avoid retyping what I've posted on my blog (and to shamelessly promote it simultaneously), I might diffidently suggest looking at the following post for more references:

http://alifinmath.wordpress.com/2009/04/09/the-dreaded-d-word/

AA said...

The link didn't come through properly:

http://alifinmath.wordpress.com/2009/04/09/the-dreaded-d-word/

Red Frog said...

I'll read your blog when I do some research on this.

Japan has been in stagnation for 10 years or more. Not a cycle, but still a recession. The depressions of the late 1800s were cyclical. The "great" depression, as you point out, wasn't a normal cylical event, as it lasted 10 years. Nor is this a normal breakdown - it has been 35 years in the making, since the early 70s, I think. So I like your point that it is not 'normal' to capitalist 'boom-bust' - although I think in the long run, it IS a long-term cycle, though one which is dialectical. I.E. is not just a repeat of the past.

"Some commentators" say it is 20%. Who might those commentators be, and how did they arrive at that figure? Definately unemployment is over the 8.5% official rate right now - 10% in some states, but to double the figure seems not to be very credible.

Wages in the 'great' depression fell 42%. Production dropped 50%. World trade went down 65%. Prices dropped 10% a year. We are not yet at these 'great' depressive levels yet. However, perhaps prior depressions were milder. I will research that.

AA said...

Here is an essay in Monthly Review suggesting that the current jobless rate is 23%:

http://www.monthlyreview.org/nfte090401.php

In addition Paul Craig Roberts has more than one recent piece where he argues the current jobless rate is nudging 20%. His argument is that if we use the 1980 criteria (which was jettisoned by Clinton) we would have a rate nudging 20%. Which sounds plausible to me.

A couple of economists are arguing that the current downward trajectory is even steeper than the one in 1929:

http://www.voxeu.org/index.php?q=node/3421

I'm typing this under protest: the reason I referred you to my blog was that these references were given there. :-)

AA said...

Here is one essay by Paul Craig Roberts in Counterpunch in January, 2009:

http://www.counterpunch.org/roberts01122009.html

If memory serves, he has since increased his estimate of 17.5% unemployment (by the 1980 criteria) further upwards in more recent articles.

AA said...

Incidentally, I believe manufacturing in Germany and Japan is down by levels not too far from 50%. One of the most astounding figures has been the collapse of Volvo truck sales, to give one extreme example. In the 3rd quarter of 2007, Volvo sold 42,000 trucks. In the third quarter of 2008 they sold 115 -- a plunger of 99.7%. More here:

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=456069

Of course this is probably unique buit it serves to illustrate the collapse of export orders throughout Europe and Japan.

With regard to wages, I fully expect to see a drop in purchasing power of 42% (if not more). I do emphasise "purchasing power."

AA said...

My last post until you respond. Tbis is worth reading:

http://www.telegraph.co.uk/finance/financetopics/recession/4980270/German-industry-is-war-zone-as-recession-causes-export-collapse.html

German output is down 19.3% compared to the same time last year (but do keep in mind this is still early days in what will probably be a protracted slump). I also like the comments of German analyst (quoted in the piece above):

QUOTE Gerd Hassel, an analysts with BHF-Bank, said: "We are in a depression. I wouldn't just talk about a recession any more."UNQUOTE

Also, other than actual output, keep an eye on the even more precipitous decline in orders, which will eventually feed through to output:

QUOTE The collapse in the flow of orders for German factories has been dramatic, down 35pc in the year to January. Manufacturing orders alone slumped 38pc.
UNQUOTE

Before I forget, there's also an eminently readable piece by Mike Whitney at globalresearch:

http://www.globalresearch.ca/index.php?context=va&aid=13236

It sum, it's increasingly difficult to call what's happening a mere recession. It's way deeper.

Red Frog said...

I read your blog post. Nice work.

I searched and could not find a Marxist definition of depression. The common definition is this: "“A depression is a severe economic downturn that lasts several years.”

So we have two factors. One, time. Two, 'downturn.' Now downturn is usually associated with unemployment and production losses. Poverty, wage declines, starvation, homelessness, bankruptcies, foreclosures, price declines, etc. are all part of a 'downturn' too.

The first issue is time. The Great Depression ("GD") lasted 10 years. The depression of 1837 in the U.S. lasted 6 years. The depression of 1893 lasted 3 years. Our present downturn started in July 2007, which means this 'event' has lasted 1 year, 8 months.

The second element is the most complicated - 'severe downturn.' I will deal with just one right now - unemployment. Unemployment in 1837 is difficult to figure out, but .5 million were out of work in a population of 16 million. If you consider 10 million to be working age, that would only be ... 5%. So the figure seems suspect. In the depression of 1893, 17% were out of work. In the GD, 25%.

Monthly Review is using 3 added figures to increase official unemployment from 8.5% - A, quit looking for work; B, underemployment; C, out of workforce in prison, etc. This figure, called U6, is 16% according to MR.

Now, unfortunately, having a 'half-job' does not make you unemployed. I have had several 'half jobs' and I was not unemployed. If two people work 20 hours a week, that is 1 full time job, not 'no' full time job. So "B" is a category I would 'cut' in half. We don't know the exact figures here, or how that would reduce the 16%, but reduce it it would.

C is a very interesting area, and most criminals are probably there because there was no other work. So the 5 million incarcerated play a role. A & C are clean to me, although some of C will be able to find some kind of work. Which also reduces the 16%.

The obvious question, however, is DID they use U-6 or the even more tenuous "jobless rate" (people between 25-54 - I myself am 57 and am invisibly employed in this 'statistic') in the 30s? No. And not in 1837 or 1893. In other words, by this very same logic, the unemployment in those periods was probably MORE than the official rate of 25% on down.

Productivity is the next. Wages in the 'great' depression fell 42%. Production dropped 50%. World trade went down 65%. Prices dropped 10% a year.

The present 'trajectory' of production loss is a different factor than the destination. A complete collapse in Volvo production and a "50%" or "19.3%" (you say both) drop in German production certainly indicates that the car economy is in a depression. Perhaps now the UAW can take over the plants ... after they are almost worthless. Do it, UAW!

Here are some events that happened in the 1837 and 1893 depressions -

1837 – financial panic, run on banks, 43% bank failure rate. Imports drop, real estate prices plunged after period of land speculation. Massive deflation.

1893 – Railroad overbuilding, bank failures, run on gold. Railroads & banks failed, 17%-19% unemployment. Massive foreclosures.

They combined a financial crash with a productivity crash, and we do have the same factors now.

However, the time period of this 'event' is still not long enough to fit the time criteria, and the unemployment/productivity losses are approaching depression levels. Some commentators say that an overall 20% drop in production signals a depression. By that definition, Britain had a depression from 1873-'96, Finland from 1989-'94, Argentina, Chile, Brazil & Mexico had depressions in the 80s, Argentina another in 1998-2002, New Zealand from 1974-'92 and the Eastern Bloc after the collapse of the workers states in the 90s.

I think we are very close to a depression in the U.S. - a long term, economic fall and stagnation.

Stay tuned.